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Experian - A mixed performance

Nicholas Hyett | 15 November 2017 | A A A
Experian - A mixed performance

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Experian Plc Ordinary USD0.10

Sell: 2,498.00 | Buy: 2,501.00 | Change -13.00 (-0.52%)
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Experian reported first half revenues of $2.2bn, up 5% on the previous year, with underlying profit before tax up 4% at $541m. Growth is being driven by the business-to-business operations, with consumer continuing to decline despite some improvements.

The interim dividend has been set at 13.5 cents per shares, 4% higher than last year.

The shares were little moved following the announcement.

Our View

Credit data is still Experian's bread and butter. But with big data playing an increasingly important role in all walks of life, it's turning its valuable data mining expertise to marketing and analytics as well.

Business-to-business sales are growing at steady mid-single digit percentages, helped by expansion into new geographies. Latin America has been a particular success, delivering steady growth despite a prolonged recession in Brazil (which accounts for around 90% of Latin American revenues). The region now accounts for around 19% of profits.

However, it's not been all plain sailing.

A few years ago rivals began offering free consumer credit checks in the US and UK, undermining Experian's subscription service. Experian has jumped in with its own product, and plans to use the large audience it's gathered to cross-sell advanced credit products and price comparison services.

The collapse in subscription revenues is hurting nonetheless, but we're lapping that strategic shift now. Revenue falls should become less dramatic from here.

In the background of the most recent set of results is the Equifax data breach. The breach saw hackers make off with the personal details of more than 145m Americans and hundreds of thousands of Brits and Canadians. The group enjoyed a small boost from its rival's misfortune, and while there's no hint of a similar issue at Experian, the worry is that it increases regulatory scrutiny of data security.

Higher regulatory costs would be far from ideal, especially as our longer-term gripe with Experian is that margins have remained stubbornly flat. Experian should be a highly scalable operation.

Margins aside, we continue to believe Experian has a bright future. Big data is an increasingly important part of an ever-growing number of industries, and Experian's steady growth is testament to its willingness to innovate and enter new markets.

That growth potential does mean the group is on a comparatively high rating, with a price to earnings ratio of 21 times. The shares offer a prospective yield of 2.1%.

Half Year Results (Constant Exchange Rates)

Although the Consumer business is on an improving trend, growth in business-to-business operations appear to have slowed as the half progressed.

Experian's free credit score offer continues to attract new members, now nearly 3m in the UK, but the loss of credit monitoring subscriptions continues to hammer consumer revenues. First half revenues are down 4% in the US and 18% in the UK & Ireland, pulling the UK & Ireland to a 3% revenue decline overall. However, this represents a slight improvement on the first quarter.

The key Credit Services business, which provides credit ratings to lenders, saw revenue grow 5%, while the smaller Decision Analytics and Marketing Services saw revenue growth of 8% and 12% respectively.

The group's performance in Latin America is particularly notable given the political turmoil in the major Brazilian market during the period. Revenue growth of 7% was exceed only by the small EMEA/Asia Pacific business (up 11%), with Decision Analytics and Marketing Services seeing revenue growth of over 30% - admittedly from a low base.

Operating margins in the half remained unchanged, at 26.5% overall, as a less negative performance in EMEA/Asia Pacific offset deterioration elsewhere.

Net debt rose 4% compared to the same period last year, and now sits at $3.4bn, or 2.2 times EBITDA (earnings before interest, tax, depreciation and amortisation). This increase reflects the $397m of share buyback completed in the period. A further $203m of share repurchases are expected to be completed by the end of the year.

CEO Brian Cassin commented; "Looking ahead, we continue to expect good levels of growth for the year, with organic revenue growth in the mid-single digit range and stable margins as we invest in our operations and growth initiatives."

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.

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